Gold prices surge after AIG bailout, dollar drop

NEW YORK—Gold prices soared Wednesday, notching the biggest one-day advance ever as mounting credit market turmoil prodded jittery investors to pull money out of equities and into safe-haven assets.

Gold's huge rally came as the government moved overnight to rescue troubled insurer American International Group Inc. with an $85 million bailout loan. The Federal Reserve stepped in after AIG, teetering on collapse from losses tied to the subprime crisis and the credit crisis, failed to find adequate capital in the private sector.

Fearing more tightening of credit markets, investors reacted swiftly and began dumping stocks and socking money into gold, silver and other safe-haven commodities. Gold is especially attractive during times of crisis because the metal is known for holding its value.

Gold for December delivery rose as much as $90.40, or 11.6 percent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session. That was the biggest one-day price jump ever; gold's previous single-day record was a $64 gain on Jan. 29, 1980. In percentage terms, it was gold's largest one-day advance since 1999.

Prior to the rally, gold had fallen 25 percent since surging to record levels above $1,000 an ounce in March.

"The same market participants who got out of gold are coming back in now. This is the start of an upward move," said Carlos Sanchez, analyst with CPM Group in New York, who predicted prices could climb back to $1,000 by year's end.

Silver prices also jumped. The December contract soared $1.158 to settle at $11.675 an ounce. December copper, however, fell 4.65 cents to settle at $3.0425 a pound.

In other commodities, crude oil rebounded after the AIG bailout eased worries that the insurance giant and other financial firms would liquidate commodities holdings to raise cash.

Light, sweet crude for October delivery rose $6.01, or 6.59 percent, to settle at $97.16 a barrel on the New York Mercantile Exchange. Prices tumbled more than $5 to close at $91.15 on Tuesday.

In other Nymex trading, heating oil futures rose 10.5 cents to settle at $2.8247 a gallon, while gasoline future added 6.22 cents to settle at $2.463 a gallon.

In agriculture markets, grain prices traded higher.

Wheat for December delivery rose 35.75 cents to settle at $7.2575 a bushel, while December corn added 21.75 cents to settle at $5.54 a bushel.

November soybeans rose 15 cents to settle at $11.39 a bushel.